Contractual hazards and long-term contracting: a TCE view from the petroleum industry

We use the tools of transaction cost economics (‘TCE’)and economic analysis more generally to analyze the provisionsof a long-term multi-million-dollar contract in the petroleumindustry, the 35 year Field Contractors Agreement signed in1965 for the development of a major oil field just offshorefrom Long Beach, California. There is a substantial public recordregarding the deliberations that ultimately led to the choiceof contract terms. That record makes it possible to identifyhow various TCE-based and related economic concerns—aboutdealing with information impactedness and restricting the scopefor opportunistic behavior— affected the choice of contractualprovisions. As such, this case study provides useful insightsinto the relevance of TCE.